Business Loan the Short-Term Assets Thesis

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However, equity in the company cannot be used as collateral because its value fluctuates. The banker would have to consider that if the company is insolvent enough to require the bank's acquisition of collateral, retained earnings would not likely have any value remaining.

3) the current ratio is calculated as the current assets/current liabilities. The current assets are as follows:

Cash 15,000

Accounts Receivable 5,000

Total Current Assets 20,000

The current liabilities are as follows:

Accounts Payable 2,500

Customer Deposits 3,000

So therefore, the current ratio is as follows:

5500 = 4.18

This is a great current ratio. The ratio is a measure of a firm's liquidity, its ability to meet its pending debts.

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This company has a limited debt load, consisting of accounts payable and customer deposits. The current assets include accounts receivable and cash. With $15,000 in cash, this firm is very liquid at present.

4) the current ratio would matter to my banker because it indicates the company's ability to repay debts. The ratio only concerns debts that are due within one year. On the asset side, only assets that are readily convertible to cash are considered. The banker wants to be sure that the company is in a position to generate sufficient cash….....

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